The New Accounting Rules: Game Changer for the Subscription Economy?

“A recent report by the Economist Intelligence Unit said 80% of customers now demand consumption models like subscribing, sharing, or leasing — any option other than buying a product outright.”

More and more businesses are transitioning to a subscription model. This is great news for consumers who can get the services and outcomes they want without the burden of ownership. It’s also great news for businesses who can turn these long-lasting customer relationships into predictable recurring revenue.

But the Subscription Economy isn’t just about offering services on top of a subscription. It’s a big shift to a subscription model, one that requires new metrics, new tools, new platforms…and soon, new ways of accounting.

Starting in 2018 for public companies (2019 for private), the Federal Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are instituting new revenue management guidelines which will require that companies reallocate revenue with every change to a customer contract and defer expense recognition accordingly.

Companies are going to have to start recognizing revenue in a very different way, and, “as a result, the new guidelines will have a material impact not just on revenue recognition but on the actual profitability of the company. For companies that need to show profitability, the new guidelines are a potential game-changer.”

In other words, with the introduction of these new revenue management guidelines, things are going to get complicated.